Problems Big and Small for China’s Micron Bid

A bid by Tsinghua Unigroup for Micron Technology would run into political opposition

If Tsinghua Unigroup succeeds in buying
Micron Technology,
MU 0.68%
it would be the biggest ever takeover of a U.S. company by a Chinese one. But it probably won’t happen.

State-owned Tsinghua Unigroup, linked to an elite university, has prepared a $23 billion bid for Micron, the biggest memory-chip maker in the U.S., The Wall Street Journal reported.

In response, shares of Asian memory makers, including Korea-based
SK Hynix
and
Samsung Electronics,
fell sharply. The fear is that under Chinese ownership, Micron could ramp up production aggressively, unsettling the cozy oligopoly that the industry has settled into. The deal wouldn’t lead to any industry consolidation—Tsinghua Unigroup owns companies that design mobile-communications chips, but has no memory foundries.

In fact, the Korean memory makers have little to worry about, as the deal has only a slender chance of going through. For one thing, the price is too low. Tsinghua Unigroup is willing to pay $21 a share, a 19% premium to Micron’s last closing price. But Micron shares are down 50% this year, and traded above $21 as recently as last month. Shareholders are likely to hold out for more.

U.S. political and security considerations are also likely to intrude. China has made it a national priority to develop a globally competitive semiconductor industry. McKinsey estimates that potential government support for this effort could reach 1 trillion yuan ($161 billion) over the next five to 10 years. It is unclear where the financing would come from for the Micron deal, but the bid has to be seen as part of this effort. Tsinghua Unigroup is 20% owned by
Intel,
but this doesn’t change the fact that it is a fully state-controlled entity.

Acquiring the U.S.’s only remaining memory-chip producer, with cutting-edge technology and foundry facilities in the U.S., Singapore and Japan, would be a coup. With the deal, China would make a quantum leap in raw computing-power production capacity. U.S. authorities are unlikely to view such a prospect favorably.

That Tsinghua Unigroup is able and willing to deploy $23 billion to acquire a leading global company like Micron signals China’s serious intent. But China can’t jump into the top semiconductor league quite that easily.